Introduction

With the advancement of information technology in the last two decades, businesses are transacting more digitally and need to be aware of the consequences of signing off documents electronically. This article contains a brief overview of the current legal position in Australia in regards to the validity of electronic signatures (e-signatures) and explores the key issues to consider if you:

  • wish to rely on e-signatures in business transactions;
  • are considering implementing an e-platform for electronic signatures in your company; or
  • receive documents that are electronically signed in your course of business.

Key legislations

In Australia, the key legislations which deal with the validity of e-signatures are the Electronic Transactions Acts (the ETAs) which exist at State and Federal levels. The State and Territory legislations, for most part, mirror the Federal act but may differ in the details. Therefore, in Australia, the law regarding e-signatures will vary on a case by case basis depending on the type of agreement, its subject matter and the location of the parties.

In addition, certain legislation may override provisions in the ETAs. Recently, the New South Wales (NSW) Conveyancing Legislation Amendment Bill 2018 was passed and assented. The Bill amends the Real Property Act 1900 (NSW) and Conveyancing Act 1919 (NSW). Section 38A of the Bill now allows conveyancing documents to be electronically signed and witnessed in NSW. This includes all contracts for sale of land, deeds and leases – such documents were previously not allowed to be executed electronically under the NSW ETA.

On the international level, Australia is a signatory to the United Nations Convention on the Use of Electronic Communications in International Contracts. The UN Convention aims to facilitate the use of electronic communication in international trade by confirming that communications exchanged electronically are as valid and enforceable as their traditional paper-based counterparts. However, in Australia, accession of the UN Convention is still being considered and only 11 countries (including Singapore and Russia) have ratified or accepted the treaty so far. It has been signed by a further 18 countries (including Australia and China) but countries such as the United States and all the European states are noticeably missing from the list of signatories and have implemented their own legislations in this area instead.

What is an e-signature?

An e-signature is a visible representation of a person’s name or mark, placed by or on behalf of the person on a document by electronic or mechanical means with an intention of the name or mark being a signature. A person may apply his or her e-signature by accessing a document via a touch screen device and signing using his or her finger, a smart pen or a mouse, or affix a digitised image of a his or her signature on the document. E-signature does not generally include signing on paper and delivering the document by e-mail or other electronic means.

Digital signature is a special form of e-signature and there are plenty of software programs available to companies considering implementing an e-platform to facilitate the digital execution of documents. These software use a certificate-based digital ID to verify the identity of the signatory and bind the digital signature to the document with encryption. Very often, such technology provides verification and authentication methods which can assist with the compliance of requirements set out under the relevant ETA.

If you are conducting business negotiations online, it is important to know that a typed name on an email may constitute an e-signature. In Attorney-General (SA) v Corporation of the City of Adelaide [2013] HCA 3, a certificate was required to be signed by a lawyer in relation to a by-law. However, the lawyer did not sign the electronic document. Only his name was on the document. The court agreed that the statement of the lawyer’s name and accompanying email was sufficient to identify the lawyer and the certificate was properly executed.

Similarly, in Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited [2011] NSWSC 716, the court found that “the inclusion of the sender’s name on the email amounted to ‘signing’ for the clause [providing for an option to renew in a lease]. The requirement for signing is intended to identify the sender and authenticate the communication.”

The above cases serve as a warning to be extra careful when corresponding through emails as an individual, or on behalf of an organisation, as a name affixed to an email correspondence may constitute a valid e-signature on binding documents.

Are e-signatures accepted under the current Australian legal landscape?

As a general rule, e-signatures are valid under the ETAs provided that they satisfy certain requirements. The general principles under the Australian ETAs are:

  • a transaction is not invalid because it took place wholly or partly by means of one or more electronic communication;
  • if an e-signature is required as proof for a legally binding agreement, the requirement is considered met if:

1. the e-signature can be used to identify the person signing the document and to indicate their intention to be bound by the agreement;

2. the method of an e-signature is reliable and appropriate for electronic communications. This is an objective test taking into consideration all relevant circumstances and the purpose for which the e-signature is required (otherwise there must be sufficient evidence to indicate the identity of the signor and his/her approval of the document); and

3. the other party of the document has consented to the use of the e-signature.

One of the main difficulties with e-signatures arises when evidence is required to identify the person signing the document and their intention to be bound by the contract. Under general contractual principles, for a contract to be valid, certain requirements must be satisfied – these include an intention to create contractual relations, acceptance of an offer and consideration. These basic principles do not change for contracts created using e-signatures.

In Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, Williams Group Australia Pty Ltd (Williams) approved a credit application by IDH Modular Pty Ltd (IDH) which required the directors of IDH to provide a personal guarantee for the obligations of IDH. Mr Crocker was one of the three directors of IDH. The credit application documents in question were executed by an e-signature management software implemented by IDH and called HelloFax. This software allowed a user to store e-signatures and affix them to documents for execution.

As a result of the executed credit application documents, Williams supplied building materials to IDH on credit. IDH went into liquidation and Williams sought to enforce the personal guarantees against the three directors of IDH for the monies owed.

Mr Crocker challenged the enforceability of the personal guarantee and argued that he was not aware of the trade credit application or guarantee. He also claimed that he had failed to change the default password for HelloFax and as a result anyone who had or obtained access to Mr Crocker’s default password would have been able to log in to the HelloFax system and affix Mr Crocker’s e-signature to the documents.

The NSW Court of Appeal held that a genuine e-signature affixed to a personal guarantee by an unauthorised individual was ineffective to bind the apparent signatory. The decision highlights the difficulties with e-signatures if evidence is required later to confirm the identity of the signatory and their intention to be bound by the agreement

If your organisation is considering implementing e-signature platforms, it is important to check that the chosen platform meets the requirements under the relevant ETAs. Whilst digital signatures are considered “more secure” than other forms of e-signatures, companies must still ensure that they have proper security measures so that only authorised persons can apply the e-signatures.

Exemptions

Not all documents can or should be executed using e-signatures. Some transactions still require pen to paper signatures. There are various exemptions in the ETAs with respect to the use of e-signatures. In addition, some legislations may override the ETAs requiring certain documents be executed by hand.

Below are some examples of exemptions to the ETAs.

  • Execution by Companies

There is some uncertainty regarding whether a corporation can use an e-signature to execute documents.

In Australia, companies are governed by the Corporations Act 2001(Cth) (Corporations Act), a commonwealth legislation, and therefore, laws regarding the use of e-signatures for execution of documents by companies fall under the Commonwealth ETA. However, the Commonwealth ETA contains a list of exempt Commonwealth laws to which the ETA does not apply. This list includes a reference to “Corporations Law”, which has now been superseded by the Corporations Act.

Section 127 of the Corporations Act governs how companies may sign documents, which includes signing by two directors (or a director and a company secretary), with or without company seal. Since the Commonwealth ETA does not override the Corporations Act, it is uncertain whether the authorised signatories may apply their signatures digitally (especially for deeds).

Some commentators, however, argue that based on s127(4), which states that s127 does not limit the ways in which a company may execute a document (including a deed), the exemption does not preclude an Australian company from signing a document using an e-signature if the company’s constitution does not forbid it and the relevant signatories have been duly authorised to execute the document using e-signatures.

  • Signatures that need to be witnessed

In most jurisdictions, the state ETA does not apply where a document is required to be witnessed. The general law concerning electronic witnessing of documents is much untested. Therefore, it is recommended that any documents requiring individual signatures to be witnessed, should not be signed electronically. However, in New South Wales, this exemption is now modified by the Conveyancing Legislation Amendment Bill with respect to conveyancing documents.

  • Deeds

Under common law, deeds must be written on “parchment, vellum or paper”. In light of this, it is questionable whether deeds in any jurisdictions can be executed electronically. It is currently generally accepted that the ETAs do not go as far as overruling the basic requirements of a deed. As a result, it is widely accepted that deeds cannot be electronically executed.

Again, an exception to this exemption is the execution of deeds in connection with the conveyances of real property in New South Wales. As a result of the recent Conveyancing Legislation Amendment Bill 2018, New South Wales is the first state in Australia to allow deeds relating to property to be signed and attested electronically. It will be interesting to see whether this change will be embraced by lawyers and parties to property transactions.

  • Documents for Third Parties or Regulators

Although e-signatures are accepted by some government regulators including the Australian Patent Office, some regulators may require wet ink signatures on paper. For example, some forms or documents lodged with the Australian Stock Exchange (ASX) and Australian Securities Information Commission (ASIC) require pen to paper signatures. In addition, some documents are required to be physically stamped. The relevant authority should be consulted to determine whether it accepts official forms to be signed using e-signatures.

In addition, if you wish to apply an e-signature on an agreement in a cross-border transaction, you should ensure that e-signature is an accepted form of execution in the relevant jurisdiction. For example, many Asian countries’ legislations concerning e-signatures are at their infancy or non-existent, or such legislations may be ambiguous.

Signing off…

The key messages from this article with respect to applying e-signatures or accepting documents with e-signatures are:

  1. If you are signing off online documents and email correspondences, always exercise due care as a name typed in an email may constitute a valid e-signature on binding documents.
  2. If your organisation is already implementing or considering setting up e-signature platforms, you need to:
    • assess whether such platform meets the requirements under the relevant ETAs in affixing e-signatures; and
    • ensure that proper security measures have been implemented or will be set up to ensure only authorised persons may apply e-signatures.
  3. If you are receiving or processing electronically signed documents:
    • as there are various exemptions under the ETAs, always consider whether it will be appropriate to accept a document signed digitally by the other party, since a deed, an agreement or other document signed digitally may not always be valid and enforced;
    • always check with the relevant authority to confirm that they will accept e-signatures on their official forms and other requirements; and
    • for cross-border transactions, always check whether e-signature is an accepted form of execution in the relevant jurisdiction.

Additionally, keep in mind that any information regarding e-signature is considered personal information and should be collected, maintained and disclosed strictly in accordance with the relevant privacy legislations.

Lastly, as circumstances are different from one situation to another, we recommend that you consult a lawyer before signing on a dotted line… electronically.